Why contingency planning for out-of-state property matters

Owning real estate in a state other than your primary residence creates a second set of legal and administrative obligations that can complicate administration after death or incapacitation. Without planning, heirs commonly face:

  • Ancillary probate in the state where the property sits, which adds time and duplicate court filings.
  • Confusion about title and beneficiary rights when deeds, mortgages, and insurance are outdated.
  • State-level estate or inheritance taxes and differences in capital gains treatment.
  • Difficulty managing physical property (vacation homes, rentals) from afar.

These problems are avoidable or reducible with a clear contingency plan tailored to the states involved and the type of property.

(For general federal guidance see the IRS estate and gift tax pages: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes and for consumer-facing probate/estate basics see CFPB: https://www.consumerfinance.gov/consumer-tools/estate-planning/.)

Key concepts you need to know

  • Ancillary probate: a secondary probate proceeding in the state where the real estate is located when the decedent’s primary probate occurs elsewhere. This can be avoided or simplified by re-titling the property or using a trust.
  • Titling and beneficiary designations: Joint tenancy, tenancy-by-the-entirety, transfer-on-death (TOD) or beneficiary deeds, and trust ownership all change how property transfers and whether probate is needed.
  • Living trusts vs. wills: A properly funded revocable living trust often prevents probate for out-of-state real estate. If the property remains titled in your individual name, it may require ancillary probate even if you have a will.
  • Durable Power of Attorney (DPOA): Grants someone authority to manage property and finances if you become incapacitated. For property in another state, choose an agent familiar with local service providers.

Practical step-by-step contingency plan

  1. Inventory and document every out-of-state property
  • Record full legal descriptions, parcel/lot numbers, deed copies, mortgage statements, tax bills, insurance policies, tenant leases, and property manager contacts.
  • Store documents in a secure digital repository and give trusted people access (password manager or executor/trustee).
  1. Confirm current title and ownership structure
  • Pull the deed from the county recorder online or via a title company. Confirm whether ownership is sole, joint, tenancy-by-the-entirety, or owned by an entity (LLC).
  • If the deed already names a joint owner with right of survivorship or uses a beneficiary deed where allowed, probate may be avoidable.
  1. Evaluate state-specific tools
  • Many states allow beneficiary or transfer-on-death deeds for real property; others do not. Check the law where the property is located and use the local option when appropriate.
  • Consider a revocable living trust funded with the real estate to avoid probate in the property’s state.
  1. Appoint local agents
  • Name a local property manager and a local attorney or agent for service of process. Your executor/trustee does not need to be physically present, but local assistance speeds operations.
  1. Update estate documents
  • If using a trust, re-title the property into the trust (“ABC Family Trust, dated XX/XX/XXXX”). If relying on a will, understand that a will alone usually triggers ancillary probate for out-of-state real estate.
  • Ensure insurance policies and mortgage lenders are aware of the ownership structure changes.
  1. Address tax and creditor exposure
  • Confirm whether the state imposes estate or inheritance tax; states like Florida have no state estate tax, but others do. Check current state law (state rules change) and consult a tax advisor.
  • For rental property, provide instructions for handling rental income, security deposits, and existing leases.
  1. Communicate the plan
  • Inform heirs, trustees, and the local property manager where key documents live, how to access them, and who to call in an emergency.

Common strategies and their pros/cons

  • Revocable Living Trust

  • Pros: Avoids probate if the property is properly re-titled; centralized management; flexible.

  • Cons: Must be funded (title changes recorded); some local counsel may still be needed for administration.

  • Transfer-on-Death / Beneficiary Deed

  • Pros: Simple, low-cost, allows direct transfer on death in states that permit it; avoids probate.

  • Cons: Not available in all states; does not help if you become incapacitated (DPOA still needed).

  • Joint Ownership with Right of Survivorship

  • Pros: Immediate ownership transfer upon death; avoids probate.

  • Cons: Exposes the property to the co-owner’s creditors; can have unintended tax or gift consequences.

  • Leaving property in your will

  • Pros: Simple drafting for many testators.

  • Cons: Typically triggers ancillary probate in the property’s state; can delay access and add costs.

Real-world examples (anonymized)

  • Rental portfolio across three states: Owner created a single revocable trust, retitled two properties into the trust, and used beneficiary deeds in a third state where that option existed. The trust cut out ancillary probate and centralized property management for heirs.

  • Vacation home in a state with no TOD deeds: A retired couple appointed a local attorney to serve as agent and placed the home into a revocable trust to avoid the state’s probate process.

Checklist for immediate action

  • Verify deed and mortgage records in the county where the property sits.
  • Determine whether the state supports beneficiary deeds or TOD deeds.
  • Decide whether to retitle property into a revocable trust or use a beneficiary deed.
  • Name a local agent, property manager, and attorney.
  • Assemble a digital folder with deeds, insurance, tax bills, leases, and contact info.
  • Update your DPOA and durable healthcare proxy; ensure the DPOA is effective for out-of-state transactions.

Taxes, liabilities, and timing considerations

  • Federal estate tax: Most estates are below the federal exclusion threshold, but high-net-worth estates should consult a tax advisor and the IRS guidance on estate and gift taxes (https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes).
  • Step-up in basis: For most inherited property, beneficiaries receive a stepped-up basis on the date of death (check IRS rules and recent guidance). This can significantly reduce capital gains if the property is sold soon after transfer.
  • State estate/inheritance taxes: Some states levy their own estate or inheritance taxes. Confirm laws for the state where the property is located and the decedent’s domicile.
  • Creditor claims and Medicaid recovery: State-specific claims against estates (including potential Medicaid estate recovery) can affect real estate. Speak with local counsel if Medicaid is a concern.

Who should be involved

  • Estate planning attorney licensed in both your home state and the property state (or separate local counsel).
  • Tax advisor or CPA familiar with multistate estate issues.
  • Local real estate attorney or title company to process deed changes.
  • Trusted executor/trustee, property manager, and emergency contact.

Common mistakes to avoid

  • Doing nothing: Leaving property solely in your name almost always leads to additional probate steps.
  • Relying solely on a will for out-of-state property: This often results in ancillary probate (courts in the property state require a separate administration).
  • Forgetting to retitle: Creating a trust but failing to record a deed transfer to the trust means the trust isn’t effective for that property.
  • Naming an out-of-state DPOA without local representation: Some transactions require a local agent or counsel to act quickly.

Further reading and internal resources

Frequently asked questions

Q: Will my out-of-state property always go through probate?
A: Not always. If the property is owned in a trust, held jointly with right of survivorship, or transferred via a valid beneficiary deed where allowed, probate can be avoided. Otherwise, ancillary probate is likely.

Q: Can a power of attorney transfer property on my behalf?
A: A durable power of attorney can manage property while you’re alive and incapacitated, but it cannot transfer property by death. Changes to title to avoid probate should be recorded while you are competent.

Q: How much extra time does ancillary probate add?
A: Timing varies by state and county—ancillary probate can add weeks to months to the estate settlement process. Legal steps, local filings, and creditor notice periods lengthen the timeline.

Professional insight

In my 15+ years working with families that own property in multiple states, the most effective single action is a funded revocable trust plus a local property manager and an attorney familiar with the property state’s land records. This trio reduces friction for heirs and preserves value by avoiding duplicate court costs and delays.

Professional disclaimer

This article is educational only and does not constitute legal, tax, or financial advice. Laws differ by state and can change; always consult a licensed estate planning attorney and tax advisor in the relevant states before making changes to property title or your estate plan.

Authoritative sources